Money always comes with strings attached. Nobody knows this better than Mitja Sadar, who’s spent two decades watching companies succeed and fail at the funding game. After years in banking, he switched sides to help growing companies navigate the maze of venture capital and growth funding. Now, as founder of Pink Elephant Solutions, he spots the patterns that trip up even experienced leaders. From messy cap tables to mismanaged investor relationships, Mitja has seen the hidden traps that can derail a company’s future. His advice? The right money matters less than the right timing.
Timing Fundraising Correctly
Most founders get the timing wrong when raising money. They wait until the bank account is running low, but that’s exactly when investors get nervous. “The right time to raise money is when you have something attractive to show,” Mitja explains. “Either traction or a product that’s going to impress the investors, show them the potential, but keep them excited about what’s coming.”
Here’s the catch: you need to start before you’re desperate. “What you have to make sure though is that you have this ready before you really need additional money,” Mitja points out. The reason? “Investors, they’re just like banks – they’re happy to give you money when they are sure that they’re going to get their money back, when they’re sure that something really is coming.” Wait too long, and you’ll pay for it. “If you wait too long, you will have to accept terms such as strong liquidation preferences or similar which are going to hurt you down the line,” Mitja warns.
Identifying Dead Equity
Not all equity is good equity. Mitja warns about something he calls “dead equity” – shares held by people no longer helping the company grow. “Dead equity is equity that you have given for somebody who’s no longer participating in a company,” he explains.
This shows up in different ways. “This could either be a university that helped you launch the company, or this could be a co-founder that left, or similar situations,” Mitja notes. Sometimes it’s early backers who’ve checked out: “Maybe an early investor that gave you 15-20,000 to get off the ground in exchange for 10-15% of the company, but then had no longer contributed or interested in the company.
Managing Too Many Investors
Numbers on a cap table aren’t just numbers – they’re relationships you have to manage. “Another pitfall when you’re doing a cap table is that you can have too many investors on cap table,” Mitja says. While more investors might seem better, reality proves trickier. “If you have three, four, five or 10 or 15 names on the cap table, you will be able to talk to them and you’ll be able to get it,” he explains. “The moment you cross a threshold of 40/50, it becomes super complex to get to keep everybody informed and to get everybody’s agreement when it’s needed.”
Mitja offers a practical fix for managing multiple small investors. “A solution for that in a lot of cases, if you have a lot of interest from the smaller tickets, is to ask them to pool,” he suggests. This means creating a separate entity where smaller investors combine forces. The benefit? “Whenever you need an approval, you only need an approval from whoever’s managing the company and not from every investor that invested in that specific company,” Mitja explains. “That’s super important – it’s going to make your life much easier down the line.”
Balancing Strategic Partnerships
When growth picks up, strategic investors come calling. While tempting, they need careful handling. “Strategic investors seems super appealing – they can open you a lot of doors, they can help, they can turbocharge your growth,” Mitja acknowledges. “They can open the doors which would have been closed if they didn’t invest.”
But there’s a catch. “If they have too large a stake, which normally is defined at around 20% or above, this closes the door for any future investors,” he warns. Why? In order for any future non-strategic investors to participate, “everybody will assume that the strategic investors will then support you and make you grow in the future”, Mitja notes.
To learn more about Mitja Sadar and his approach, check out his LinkedIn profile or visit his website.
